When we think about someone being vulnerable, we often think about an elderly person who might be taken advantage of, or a person with a physical or intellectual disability who requires safeguarding. But for private client lawyers, it is important to take a much wider, flexible view of what it means to be vulnerable, as it might not always be as obvious as one might think.
Thinking about financial vulnerability in particular, a young person who might otherwise be thought of as not vulnerable, might be so in certain circumstances. With the huge growth of the digital economy and social media, it is becoming increasingly common for young people, sometimes under 18, to accumulate significant wealth early in life. This might be because they are a social media influencer, have created a successful start-up, are a tech entrepreneur or inventor, or have started some other successful creative venture. As private client lawyers we are more and more likely to encounter young people in these circumstances, and we need to be mindful of their specific vulnerabilities, and what expert advice they might need.
A young person who has gone viral on social media might be financially successful, and have a brilliant creative mind, but that does not mean that they have the knowledge and experience required to manage their newfound wealth. Professional advice in this context is crucial, for example:
- Someone in this position might underestimate the complexity of the UK income tax system, particularly if they have multiple income streams, such as brand deals, business profits, or social media income. The help of an accountant or tax adviser will be essential to ensure correct reporting, and to maximise allowances and deductions.
- In the same vein, advice might be needed for dealing with capital gains tax reporting, for those investing in stocks, crypto or property. Thought needs to be given to the timing of disposals, to maximise the use of allowances, as well as potential reliefs for selling a successful business.
- They may require strategic tax advice on how to structure things for the funders of their ventures to make the investment a more attractive proposition, and ensure their investors achieve all the tax reliefs to which they maybe entitled.
- Consideration needs to be given to how to build sustainable, long-term wealth. Investing in the stock market can be financially dangerous without proper guidance on diversification and the level of risk involved in different investment strategies. Moreover a young person might not think about the importance of saving for the future by paying into a pension pot, as they do not realise that early investment will lead to a much better position at retirement.
- Anyone accruing significant wealth should also think about their legacy, and what they want their wealth to achieve for future generations. A 20-year old tech entrepreneur might not think this is relevant to them if they are young and healthy, but having a Will can give peace of mind that if something were to happen, their wealth will go where they want it to. This will also include reviewing their inheritance tax position, and looking at possible mitigation measures, such as claiming business property relief, investing in tax efficient vehicles such as Venture Capital Trusts (VCTs), and Enterprise and Seed Enterprise Investment Schemes (EIS and SEIS), or using life insurance to cover future inheritance tax liabilities.
- Anyone with significant wealth should also think about making a lasting power of attorney (LPA) for financial affairs, so that if they were to be incapacitated for any reason, there would be a person or persons ready to step in to take care of things – this is particularly important for anyone who is a sole business owner. This is in addition to making an LPA for health and welfare, for the worst case scenario.
Sudden wealth for someone who does not have the skills to manage it may mean failure to provide for the future, or failing to understand the legal and tax implications of taking certain steps. This, combined with the fact that it can make someone vulnerable to fraud and exploitation, means that it is essential for a young person in these circumstances to surround themselves with reliable professionals, providing the required expertise.
As estate planning specialists, we are experienced at helping clients in all walks of life achieve their financial, estate planning and philanthropic goals, helping them manage relationships with accountants, financial advisers, investment managers and other professionals.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
